Shrinkflation

Syllabus: General Studies Paper 3

Shrinkflation refers to the tampering of a product while maintaining retail price.

What is Shrinkflation?

• Shrink inflation is when a product downsizes its quantity while keeping the price the same. For example, reducing the scoops of ice cream in a container or reducing the number of chips in a packet would count as shrinkflation. 
• In other words, shrinkflation occurs when goods shrink in size but consumers pay the same price. It occurs when manufacturers downsize products to offset higher production costs but keep retail prices same.
• It is a form of hidden inflation.
• Raising the price per given amount is a strategy employed by companies, mainly in the food and beverage industries, to stealthily boost profit margins or maintain them in the face of rising input costs.
• Shrinkflation is also referred to as package downsizing in business and academic research.

Shrinkflation can occur in different ways. 

• It’s not just the weight that will be compromised as it is not uncommon for companies to look for alternative options. 
• If consumers are aware that the quantity is constantly declining, they would switch or change brands. 
• To prevent this, a product can reformulate or remove ingredients while maintaining its price. For example, Cadbury Dairy Milk stopped using foil which it used to prevent chocolate from losing its quality and flavour in order to save expense. 
• Though downsizing products reduces costs for manufacturers, it is an unfair practice toward consumers. 
• It can lead to a loss of trust if companies fail to properly communicate with them. 
• Shrinkflation can lead to customer frustration and deterioration of consumer sentiment towards a producer’s brand.

Various implications

• In the event of shrinkflation, it is more difficult to accurately measure price changes or inflation. 
• Price points become misleading when the basket of goods cannot always be measured by considering the product size. 
• Tackling shrinkflation means tackling inflation. 
• In India especially, inflation is a complex phenomenon caused by several factors, such as demand-pull factors, cost-push factors, and structural factors. 
• Therefore, we need a mix of macroeconomic policies to manage demand and supply, as well as address structural rigidities in the economy.